A tentative recovery in property market
CAPE TOWN - An interest rate cut yesterday would have provided some relief for the weak economy and boosted the housing market, although there are already tentative signs of a recovery in the sector, industry executives said.
The South African Reserve Bank (SARB) left the repo rate unchanged at 3.5 percent yesterday.
SARB now sees gross domestic product shrinking 8.2 percent this year, compared with its July estimate of a 7.3 percent decline.
After the SARB’s decision yesterday not to cut the repo rate further, Pam Golding Property Group chief executive Dr Andrew Golding said there were no real signs of meaningful economic reform or stimulus, and consumer and business confidence was severely constrained. Consumers faced limited ability to spend.
However, with Covid-19 infections receding, the move to level 1 was encouraging news for the economy, particularly the opening of international borders – albeit with conditions – and reducing the hours of the curfew, which would assist the tourism and hospitality sectors.
“As the economy has largely reopened, lower rates are now likely to have more impact by easing debt burdens for households and businesses. It is hoped we will see a reduction in the repo rate at the next Monetary Policy Committee meeting in November,” said Dr Golding.
RE/MAX of Southern Africa chief executive Adrian Goslett said the previous rate cuts had generated increased appetite among first-time buyers and had also increased activity in the property market in general.
“Keeping interest rates stable after these cuts would allow market activity to continue as it has been, which will hopefully lead to further market recovery,” Goslett said.
BetterBond chief executive Carl Coetzee said the five repo rate cuts since January, with the prime lending at a historic low of 7 percent, meant that “instead of the house price free-fall many had expected because of the restrictions on property transactions, we are seeing house prices starting to stabilise, and even strengthen, as the low interest rate motivates buyer activity”.
As an example of how much mortgage bond holders stood to save based on the earlier interest rate cuts, BetterBond said that reducing the interest rate from 9.75 percent to 7 percent has amounted to a saving of R623 585 on a R1.5 million home loan with a 20-year term.
“At the current interest rate, bond repayments can be more affordable than the monthly rent. But new buyers should leave room in their budget so that they can still afford the repayments if interest rates later return to their previous levels of around 10 percent,” said Goslett.
The middle and lower sectors were fueling activity in the residential property market, and the luxury market was also experiencing “green shoots of increasing transactions”, Goslett said.
Seeff Property Group chairperson Samuel Seeff said the improved affordability and pent-up demand following the hard lockdown had boosted June to August property sales in many areas to pre-Covid levels, and some to the highest levels in recent years.
“This has resulted in a surprising uptick in prices, with FNB reporting 2.8 percent year-on-year growth for August, from 1.8 percent in July. Properties are currently selling at some of the fastest rates in recent years,” he added.